Monday, November 23, 2009
Waiting For The Bubble
In today's column about the administration listening to Wall Street's scare stories about what will happen if they do what's necessary and actually try to create some new jobs, Krugman is as astonished by Obama's words last week about deficits causing a double dip recession as I was:
In December 2008 Lawrence Summers, soon to become the administration’s highest-ranking economist, called for decisive action. “Many experts,” he warned, “believe that unemployment could reach 10 percent by the end of next year.” In the face of that prospect, he continued, “doing too little poses a greater threat than doing too much.”
Ten months later unemployment reached 10.2 percent, suggesting that despite his warning the administration hadn’t done enough to create jobs. You might have expected, then, a determination to do more.
But in a recent interview with Fox News, the president sounded diffident and nervous about his economic policy. He spoke vaguely about possible tax incentives for job creation. But “it is important though to recognize,” he went on, “that if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”
Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence.
He goes on to write that many Wall Street analysts are all having hissy fits about the debt because they are convinced that rates are going to soar and there's goingto be acollapse in investor confidence. (He later points out that these are the same analysts who were having major hissy fits just months ago about inflation --- and were arguing against the stimulus for that reason.) And the whole thing reminded me of this post I wrote last March:
I was just reading this interesting piece about narcissistic personality disorder and musing about the mindset that believes it's ok to take down the world economy and then dictate the rules by which it is fixed.(Not to mention turn a profit at it!) And then I read this:
In recent days, in spite of public furor over huge bonuses paid at American International Group Inc., the administration has concluded that it needs the private sector to play a central role in fixing the economy. So over the weekend, the White House worked to tone down its Wall Street bashing and to win support from top bankers for the bailout plan announced Monday, which will rely on public-private investments to soak up toxic assets.
But weeks of searing criticism by politicians and the public had left bankers leery of working with the government. After brainstorming about what to do about that problem, the White House resolved to try to take control of the debate, according to several administration officials. In weekend television appearances, President Barack Obama and other administration officials tempered their criticisms of the financial sector.
President Obama met with members of the National Conference of State Legislature at the White House speaking adamantly about how his $787 billion dollar bailout must be used wisely and that wasteful spending will be avoided. Video courtesy of Fox News.
Meanwhile, Treasury Secretary Timothy Geithner and his colleagues worked the phones to try to line up support on Wall Street for the plan announced Monday. They told executives they don't favor using the tax code to retroactively penalize specific individuals who had received bonuses, according to people familiar with the calls. They asked officials to sign on "in pencil, not ink," and to "validate" or "express support" for the plan, these people say.
Some bankers say they turned the conversations into complaints about the antibonus crusade consuming Capitol Hill. Some have begun "slow-walking" the information previously sought by Treasury for stress-testing financial institutions, three bankers say, and considered seeking capital from hedge funds and private-equity funds so they could return federal bailout money, thereby escaping federal restrictions.
Well that certainly clears this up:
“It’s almost like they’ve got — they’ve got a bomb strapped to them and they’ve got their hand on the trigger,” President Obama said on Thursday of the banks he’s chosen to bail out. “You don’t want them to blow up. But you’ve got to kind of talk [to] them, ease that finger off the trigger.”
No kidding. Reading that WSJ article, I can't help but be reminded of another president who was shown in no uncertain terms who was really running the show:
Clinton's experience shows what such pressure can do to a president's agenda. Promises of spending on education, public works and a middle-class tax cut fell by the wayside as advisers led by Robert Rubin, who later became Treasury secretary, convinced the new president the best thing he could do for the economy was to show investors his resolve on fiscal discipline.
``You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?'' Clinton raged at aides, according to journalist Bob Woodward's book, ``The Agenda.''
As it was then, so it is now. (And you can bet that the fucking bond traders are getting ready to strap on the IED over health care and energy...) The owners of America will be appeased or they will destroy everything in their wake.
In another world, they would call this economic terrorism.
Krugman winds up his column with this:
Still, let’s grant that there is some risk that doing more about double-digit unemployment would undermine confidence in the bond markets. This risk must be set against the certainty of mass suffering if we don’t do more — and the possibility, as I said, of a collapse of confidence among ordinary workers and businesses.
And Mr. Summers was right the first time: in the face of the greatest economic catastrophe since the Great Depression, it’s much riskier to do too little than it is to do too much. It’s sad, and unfortunate, that the administration appears to have lost sight of that truth.
Since the same people who advised Clinton that his economic program depended on a "bunch of fucking bond traders" are advising Obama today, I guess we'd just better keep our fingers crossed that there's another once in a lifetime bubble right around the corner to get us out of this thing. It sounds like that's what they're counting on.
Update: And then there's this. (h/t to mike)
digby 11/23/2009 08:30:00 AM